The fiscal rules are dead; long live the rules

As was quite predictable, PMQs today were simply an onslaught from David Cameron and Nick Clegg against Gordon Brown’s woeful economic policies.  The Conservative leader’s most provoking line, which he repeated time and again, was that Gordon Brown’s fiscal rules were dead, and that the Prime Minister should admit to this and restore credibility.

And it’s true.  The fiscal rules have been completely shattered.  Despite the government trying to weasel its way out of it, taking on the £100bn debts of Northern Rock, as it was required to do by the Office for National Statistics, forced the government’s total debt way past the 40% of GDP limit that the government had set.  And that’s growing at £37bn every six months.

That doesn’t include the government’s unfunded pensions liabilities (which would be considered debts for a publicly-listed company) or the debts of Network Rail (which is a company owned by guarantee whose guarantor is the government!).  Including those figures costs us gives us at least £1.85trn according to Burning Our Money, and the unjustifiable nationalisation of much of the financial sector, we see the number now hovering somewhere nearer £2.3trn: or near 150% of GDP.  If that’s covered by bonds at the Bank of England base rate of 5% (perhaps one opportunity cost), that means that paying interest on the national debt will have soared to over £100bn a year.

As much as that makes me brick myself, as it should you, that is the least of the government’s problems.  By far the worst is the fact that everyone is now agreed that the government hasn’t met the first of the fiscal rules: its so-called ‘golden rule’.  Let me quote from the halcyon days of 1998:

The golden rule - borrowing only to invest and not to fund consumption - recognises the different economic nature of current and capital spending, and the public sector is being encouraged to make best use of its existing assets;

Clearly, the government does not deficit spend merely to invest.  Current public spending, on hospitals, schools, and other things that the private sector does infinitely better than the government, has gone through the roof since 1997 (the health budget alone by £60bn).  And that doesn’t count the really scary numbers related to the government’s mad impending make-work programmes.  That is clearly a departure from the rules in the most shameless manner: foistering debt, and thus taxes, upon future generations.

Now, the Code for Fiscal Stability (pdf) does allow the government to depart from its fiscal rules, provided three conditions are all met:

a. the reasons for departing from the previous fiscal policy objectives and operating rules;
b. the approach and period of time that the Government intends to take to return to the previous fiscal policy objectives and operating rules; and
c. the fiscal policy objectives and operating rules that shall apply over this period.

Seems to me that that was just what David Cameron was asking Gordon Brown to do at PMQs today: tell the world that the government was departing from the fiscal rules, give an explanation, let people know when normality could be expected, and provide some interim rules that would maintain credibility.

Those, sadly, were all lacking.  And, frankly, who can blame Brown for refusing to meet his legal obligations under the Code for Fiscal Stability answer the opposition’s sneeky questions?  After all, we’re going to have negative economic growth next year, have stubbornly high inflation and soon-to-be rocketing unemployment, and the UK already has a public sector deficit that breaks all the rules in the book.

I think the technical work for what the government is is screwed.